Are We on the Brink of a Global Debt Crisis?

The economic shocks from Trump’s war on Iran are undermining countries’ reliance on U.S. debt and fiat currency. If this snowballs, America has the most to lose.

To understand the path the world economy is currently on, close your eyes and imagine the vaults beneath the Bank of England in London. Turkey’s central bank holds $30 billion in gold reserves there, and right now is quietly seeking to leverage it with a massive bullion-for-foreign-currency swap. It’s no secret why: Turkey’s economy has been walloped by the inflationary shocks from President Trump’s war on Iran—in particular the effective closure of the Strait of Hormuz—and the central bank is realizing that U.S. treasuries and other investments in the dollar may not keep them afloat, so they’re scrambling for hard liquidity.

Turkey is the canary in the coal mine for a $106 trillion global financial system on a headlong collision course with the Donroe Doctrine. For decades, the structural assumption of international finance has been that American sovereign debt and fiat currency were the ultimate safe harbors. But when imperial wars disrupt the global economy’s supply chains, paper promises evaporate. Pushed to the brink by the Trump administration’s miscalculations, sovereign states are being forced to abandon those promises and retreat to material bedrock.

Nowadays, when macroeconomists talk about global debt hitting a “ceiling,” the immediate instinct of the investment class—and anyone else who peruses Financial Times and Barron’s—is to brace for a replay of 2008. Years of coverage in the mainstream financial papers have conditioned us to picture underwater suburban mortgages, maxed-out credit cards, and over-leveraged consumers triggering a massive, cascading recession.

But that is not the crisis we are staring down today. In fact, if you look at the underlying data, the global household debt-to-GDP ratio is hovering around a decade low. The global working and middle classes, while certainly squeezed by relentless inflation and stagnant wages, aren’t driving this........

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